Line Of Credit is a completely new kind of loan. If it has to be described properly, we can’t even depict it as a loan. This is more handy and flexible for the user and this is the vital reason behind people using it more often these days. The buzz surrounding Line Of Credit is far beyond words now. A plethora of Americans are opting for the Line of credit rather than many other loans.
In general terminology, people call it LOC. In popular culture, due to all the coinciding factors, people often confuse LOC with Credit Card loans. But, there are certain things which differentiate the both.
What is Line Of Credit (LOC)?
Getting into the basic aspects of LOC, we can call it as the arrangement between a financial institution, usually a bank or some lender and a customer that establishes a maximum loan balance that the lender allows the borrower to access or maintain. Whenever it is needed, the borrower can draw money from the LOC. All he has to do is to take care of not crossing the maximum amount which is agreed on the day one of the deal.
The borrower should pay back the amounts in a monthly manner. Every cycle lasts for a month. The customer can access further funds only after paying back the earlier loan. This way, the streak of credit is created and it is so called as the LOC.
How Can You Get A LOC?
There are two kinds of possibilities to get a LOC. One is secured and another is unsecured. In case of the secured LOC, you must be a house owner which is a home equity lines of credit (HELOC). This line of credit is secured by the equity in the customer’s home, but it works exactly like any other line of credit.
Meanwhile, unsecured LOC doesn’t include the collateral. Here the borrower can show some reasonable amount of money as the collateral and sometimes it is not even needed. A borrower can only take the amount which is less than or equal to the assured sum written on the agreement.
How Can You Repay It?
Unlike the fashion that is followed by credit card and title loans, there is a different strategy adopted in LOC. Here you can pay whatever you can in that month but make sure you will complete the total payment by the end of that month. If paid systematically, you can proceed for the next loan which can be any amount that is less than the maximum sum.
Why Is LOC Better Than Any Other Kind Of Loan?
In this kind of loan, you can take as much amount as you need for n number of times during the month. You won’t be charged any overdraft or the loan fees. All you have to deal with is the interest rate which obviously is higher than it will be any other kind of loans like Title loan or the Installment loan.
Why Everybody Must Maintain A LOC
LOC plays a major role in improving the credit score. Having one account itself is quite helpful in reflecting a good conduct on the credit report. Many people simply sign up for the LOC at some financial institution, but won’t step forward to drawing money. Their sole intention behind having an account is to enhance the credit score.
Not just the credit score. LOC is a simple solution for the momentary problems. One can use only a little sum which is useful in that particular situation. There are no limited amount draws and norms. The only exception is that the money that can be withdrawn at once cannot be greater than the sum mentioned in the agreement, but it can get lower to any extent. Roger that.